In this first of a series of articles on restructuring in Singapore, we consider recent developments relating to 4 practical features of schemes of arrangements (“SA”) which could be vital considerations for creditors and debtors alike.
(1) SAs by foreign companies
Since 2017, foreign companies with “substantial connection” to Singapore have been statutorily permitted to restructure in Singapore (s 246(1)(d) and s 246(3) of the Insolvency, Restructuring and Dissolution Act (2018) (“IRDA”)). Significantly, a substantial connection for this purpose would be established if a company has chosen Singapore law as the law governing its loan or other transaction. The choice of Singapore governing law of a loan is therefore an important consideration. Other non-exhaustive factors which can establish a substantial connection include the company:
- having its centre of main interests in Singapore;
- having substantial assets in Singapore;
- carrying on business or having a place of business in Singapore;
- being registered as a foreign company in Singapore; or
- having submitted to the jurisdiction of the Singapore courts for the resolution of one or more disputes relating to a loan or other transaction.
The case of Re PT MNC Investama TBK  SGHC 149 demonstrates that courts here are prepared to go beyond these factors in finding that a company has a substantial connection with Singapore. In this case, a listed Indonesian company which traded its debts on the Singapore Stock Exchange was found to have a substantial connection with Singapore on the basis that the trading of debts on the stock exchange indicated that it had a substantial (as opposed to transient) business activity in Singapore.
A string of cases since 2019 have had regard to the following factors in deciding a company’s centre of main interests: its jurisdiction of incorporation / place of registered office, place where its business is conducted, location of its board meetings or assets, jurisdiction and governing law of its contracts and how it presents itself to third parties (Re Zetta Jet Pte Ltd & Ord (Asia Aviation Holdings Pte Ltd, intervener)  4 SLR 1343, Re Rooftop Group International Pte Ltd and another (Triumphant Gold Ltd and another, non-parties)  4 SLR 680, Re Zipmex Co Ltd and other matters  SGHC 196). The focus is on the practical, with activities on the ground being more important than the legal structure. Ultimately, the court considers, where, on balance, the centre of gravity of the material factors lies.
(2) Guarantor SAs
In an important 2019 decision of Pathfinder Strategic Credit LP & another v Empire Capital Resources Pte Ltd & another  SGCA 29 (“Pathfinder”), the Court of Appeal found that a guarantor company can in principle apply for a scheme seeking the release in favour of primary obligor companies. While the scheme application in this case was rejected due to “woefully inadequate” disclosure, the Court expressed its provisional views on the permissibility of third party releases and considered that a relevant factor to consider at the stage where a company applies for leave to convene a meeting of creditors to consider an SA is the sufficiency of the nexus or connection between the third party liability and the relationship between the company and the scheme creditors.
The ability of a guarantor to propose an SA may be particularly useful where the underlying company is not in a jurisdiction with many restructuring options, e.g., where the underlying co is Indonesian and the guarantor is a Singapore company.
(3) Conventional and pre-packaged SAs
When applying for an SA (under s 210 of the Companies Act), a company makes two applications to the court: first, to convene a meeting of creditors (the “Leave Stage”) and then to have the SA that creditors vote on sanctioned by the court (the “Sanction Stage”). Normally, the company’s proposal requires support from a majority in number representing 75% of the value of the creditors (or each class of creditors, e.g., secured and unsecured creditors) (s 210(3AA) and (3AB) of the Companies Act). The court however now also has the power to cram-down a dissenting class of creditors under s 70 of the IRDA if (i) a majority in number of the creditors meant to be bound by the SA who were present and voted at the creditors’ meeting agree the arrangement, (ii) the majority represents 75% in value of creditors meant to be bound, and (iii) the court is satisfied that the arrangement does not unfairly discriminate between two or more classes of creditors, and is fair and equitable to each dissenting class. The “fair and equitable” concept requires (among other things) that no creditor in the dissenting class receives less under the SA than it is estimated by the court to receive in the most likely scenario if the scheme is not passed.
In 2017, Singapore’s restructuring laws also introduced what is referred to as the pre-packaged scheme of arrangement. The pre-packaged scheme dispenses with the first application to convene a meeting and so is predicated on the company engaging in early and transparent discussion with creditors to canvass the requisite support (i.e., a majority in number representing three-quarters in value of the creditors or class of creditors). To establish the requisite level of support from creditors, the company may solicit votes from its creditors prior to getting the court’s approval, and/or enter into agreements evidencing support. This recent out-of-court avatar can potentially save precious time and costs for a restructuring company, and can be particularly useful where the company’s creditors are supportive.
(4) Disclosure by a company applying for SA
Typically, when a company proposes or intends to propose an SA, it applies for a mortarium restraining proceedings against the company under s 64 of the IRDA. When making the application, the company must provide specific information in support of such an application including (i) evidence of support from its creditors for its SA and an explanation of how such support would be important for the success of the SA, (ii) a list of every secured creditor and the 20 largest unsecured creditors, and (iii) of the SA has not yet been proposed, a brief description of the the intended SA which will enable the court to assess whether the SA is feasible and merits consideration by creditors.
At the Leave Stage of a conventional SA, there must be sufficient disclosure to enable the court to determine the issues that it must properly consider at that stage, such as the classification of creditors, the proposal’s realistic prospects of success, and any allegation of abuse of process. Other than evidence of support, the company must provide financial disclosure in such manner and to such extent as is reasonably necessary for the court to be satisfied that a fair conduct of the creditors’ meeting is possible. The sufficiency of disclosure depends on factors such as the resources of the company, the size of the debt, the urgency of the application and the reasons for the company’s inability to provide further disclosure. At the Sanction Stage, an applicant company must have disclosed sufficient information to ensure that creditors are able to exercise their votes meaningfully. The information provided should not only enable creditors to determine their expected returns under the scheme, but should also relate to the commercial viability of the SA as a whole.